Oil and geopolitics in focus after turbulent weekend

In focus today

• This morning, we launch our AI Investment Tracker, a new monthly update on the AI investment boom. The AI build-out has become one of the most important drivers for the global economy as well as for financial markets and how it develops will be key for both investors as well as companies. Current signals show continued strong AI data centre investments into 2027 but looming challenges from bottlenecks and a few cracks in the credit markets.
• On the data front, the week starts out light before focus turns to flash PMIs from all major economies. The releases will be watched for signs of whether activity continues to outperform expectations. September inflation is due from the UK on Wednesday and Japan on Friday, potentially adding further pressure on their central banks.

Economic and market news

What happened overnight

In Japan, BOJ Governor Ueda said underlying inflation is "quite close" to the 2% target, citing tight labour markets and strong global AI demand as sources of price pressure. He also warned that failing to raise rates at an appropriate pace could push long-term bond yields higher. The BOJ's next meeting concludes on 30 October 2026, where markets expect rates to stay at 1.25% but will look for signals keeping a hike to 1.5% as early as December on the table.

In commodities, Brent crude opened lower this morning, trading around USD 108/bbl after reaching around USD 109/bbl on Friday. The decline followed President Trump's waiver of key sanctions and tariffs on Russia, potentially allowing higher fuel exports. Still, supply risks remained elevated, as Ukraine struck Russian energy infrastructure on Sunday and attacks on vessels near Hormuz continued to threaten Gulf crude flows.

In China, the monthly batch of data for September was a mixed bag but overall, still pointed to weak domestic demand amid surging exports. GDP growth increased from 4.3% y/y in Q2 to 4.5% y/y (consensus 4.4% y/y) in Q3 thus staying in the low end of the 4½-5% growth target range. On a positive note, retail sales were slightly better than expected rising from 0.4% y/y to 1.1% y/y (consensus 0.5% y/y) but it was partly due to the mid-Autumn Festival falling in September this year. Home prices also showed a lower rate of decline in September with new home prices down 0.14% m/m after -0.17% m/m in August. However, home sales looked weak again in September and property investments were down 20.6% y/y. Hence it is still too early to call the bottom in the housing market. Industrial production increased from 5.2% y/y to 5.5% y/y in line with consensus.

What happened over the weekend

In France, pressure on the government intensified after weekend protests over living costs and public services escalated into some of the worst unrest in years. Reuters reported more than 2,000 arrests, over 600 injured police officers and firefighters and widespread damage to shops and public buildings. The unrest adds to an already challenging backdrop, with the government trying to pass next year's budget, investors focused on France's deficit path and political uncertainty elevated ahead of the 2027 presidential election.

In geopolitics, the split between the EU and the US on Russia policy widened over the weekend. EU leaders meeting in Brussels vowed to maintain sanctions on Russia and sustain support for Ukraine, with von der Leyen saying no sanctions would be lifted unless Russia stops the war and that the EU is working on a 22nd sanctions package. Trump then signed an executive order on Friday waiving key Russia-related sanctions and tariffs under the Graham Act, including measures targeting Russian goods and countries buying Russian oil and gas, shortly before they were due to take effect. Secretary of State Rubio said Trump would use up to 60 days to assess the economic impact, while also defending a separate agreement for Russia to increase diesel supplies to the US and global markets. Zelenskyy criticised the waiver as "wrong", saying it would help Moscow and prolong the war. However, concerns about US support eased somewhat on Sunday after Zelenskyy said US intelligence-sharing had resumed and that he had discussed next diplomatic steps with Trump envoys, including a possible new peace meeting this week.

Transatlantic tensions were also visible in the tech space, as the US ambassador to the EU warned of "devastating" retaliation if Brussels presses ahead with proposed changes to how satellite frequencies are allocated. The proposal would reserve part of the spectrum that allows smartphones to connect directly to satellites for EU suppliers, potentially limiting access for non-EU operators such as SpaceX's Starlink. The dispute is part of a broader EU push to strengthen technological sovereignty.

In the US, September import prices rose 1.1% m/m (cons.: 0.8%, prior: 0.5%) and 8.1% y/y, remaining a key driver of US inflation. The increase is heavily linked to the rising cost of AI investment goods, with import prices in semiconductors and computer accessories both climbing sharply over the past year and no clear sign of the momentum easing. Industrial production and manufacturing output also came in above expectations, although broader quarterly momentum looked softer amid higher energy prices and supply chain disruptions from the Middle East conflict. Capacity utilisation rose to 76.9% (cons.: 76.5%) but remained below its long-run average of 79.4%.

On the wires in the US, Chicago Fed's Goolsbee called the stronger-than-expected CPI and PPI prints "discouraging", but said he still has some optimism if the drivers of inflation are ones that can go away in short order. He added that if inflation is instead driven by overheating demand from the AI build-out, that would be more disturbing and something the Fed would have to address.

In Sweden, unemployment declined to 8.6% in September from 8.9% in August. However, employment also fell following the strong August reading, which means the decline in unemployment was driven by a lower activity rate, from what had been at a record-high level. The less volatile quarterly LFS figures were also released and point to strong employment growth in Q3. Employment increased by 0.8% q/q, above our Nordic Outlook forecast of 0.5% q/q. The labour force also surprised on the upside, leaving the unemployment rate for Q3 unchanged at 8.7%, slightly above our forecast of 8.6%. Overall, the figures were broadly in line with expectations and consistent with stronger GDP readings this year.

In the euro area, the final September inflation print confirmed the flash estimates of 3.8% y/y for headline inflation and 2.5% y/y for core inflation. The details continue to point to only very modest spillover from energy prices to other goods and services. LIMI (low import intensity) inflation remains below its pre-Iran war level, while energy-sensitive inflation is even moving lower.

Equities: Friday's selloff during the US cash session reflected a further unwind of the AI trade, compounded by a rising oil price. Yet the headline indices masked a much more mixed market: most sectors and regions finished higher, while energy outperformed tech by more than 4pp on Friday alone. The SOX index nevertheless recorded its eighth consecutive decline, its longest losing streak since 2006, highlighting how heavily the recent weakness has been concentrated in the AI trade.

Friday also brought the first clearer signs of broader risk aversion, with VIX rising towards 20. Sector performance reinforced that message. Consumer staples and discretionary have often moved together this year as inflation, energy prices and rates shaped the consumer outlook. On Friday, however, staples materially outperformed discretionary, a more conventional macro slowdown pattern. Sentiment is more constructive this morning. Although Asia and European futures retain some catch-up to Friday's US weakness, US futures are materially higher, led by Nasdaq.

FI and FX: The EUR fell on a broad basis, when the FX market opened Sunday evening. EUR/USD fell below 1.12 and thus reversed the rise on Friday, EUR/JPY below 177 and EUR/CHF below 0.9250. EUR/NOK and EUR/SEK also opened the week lower. Last week, ended with flatter yield curves in US and Germany, while a main focus for the market was upwards pressure on energy prices with the price on Brent crude rising to USD109/bbl and the price on TTF natural gas to EUR88/Mwh. Brent crude opened lower overnight.